Three years of DeMo: Cash circulation continues to thrive

Bengaluru: A man counting new Rs 100 currency notes in exchange of the old Rs 500 and Rs 1,000 notes at a bank counter in Bengaluru on Nov 10, 2016. (Photo: IANS)

New Delhi, Nov 8 (IANS) Government’s core objective of carrying out — demonetisation — three years ago, has remained unfulfilled, as data showed an increase in the level of hard currency in the system.

It was on November 8, 2016, that Prime Minister Narendra Modi initiated demonetisation, taking the country by surprise. It was envisaged with an aim of eradicating black money and curbing dependence on the cash economy.

However, the Reserve Bank of India’s data showed that cash with the public as of October 25, 2019, stood at Rs 21,59,781 crore, a 15.2 per cent higher on a year on basis.

Further there was an increase of 5.2 per cent in the currency level with the public from March 31, 2019 till October 25, 2019.

As the data showed the exercise has failed to accomplish the objective of a cashless society, DeMo has also been cited as one of the main factors for the slowdown which has gripped the country’s economy.

The fancy of the Indian public regarding the new notes, can be gauged from the speculations that Rs 2,000 notes are being hoarded.

The decision and the exercise has received criticism from several quarters over the years and it has been said that other than increase in adoption of digital payment services, the exercise could not achieve any of its goals and rather hurt the country’s growth.

The decision had hit the unorganised sector quite badly and major sectors like real estate also witnessed a slump.

Last month, a research report co-authored by IMF chief economist Gita Gopinath claimed that the demonetisation exercise generated a decline in national economic activity of roughly 2 percentage points in the fourth quarter of 2016 and was equivalent to a 200 basis point interest rate hike.

“The magnitude of the peak effect on output is comparable to a roughly 200 basis point tightening of the monetary policy rate based on the median of estimates reviewed in Ramey (2016) of econometric studies of US data,” the research report said.

A survey on the impact of demonetisation, showed that around 32 per cent of the people surveyed upon said it caused loss of earnings for many unorganised sector workers, 2 per cent said it was a sizable migration of labour to villages and lowered rural income while 33 per cent said the biggest negative impact of demonetisation was the economic slowdown.

The survey done by a social media firm ‘Local Circles’, was released on Friday here. The pan India survey was done to check how consumers were conducting transactions and whether they felt that demonetisation had brought any positive change for the country.

Notwithstanding, the digital transactions have witnessed a rise post in the last three years. Data released by the RBI showed that digital payments constituted 96 per cent of total non-cash retail payments during the period October 2018 to September 2019.

During the same period, the National Electronic Funds Transfer (NEFT) and Unified Payments Interface (UPI) systems handled 252 crore and 874 crore transactions with year on year growth of 20 per cent and 263 per cent, respectively.

To further empower citizen with an ‘Exceptional (e) Payment Experience’ and provide an access to a bouquet of options, the Reserve Bank has also proposed to mandate banks not to charge savings bank account customers for online transactions in the NEFT system with effect from January 2020 and permit all authorised payment systems and instruments (non-bank PPIs, cards and UPI) for linking with National Electronic Toll Collection (NETC) FASTags among other steps.

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